TLDR:
- Ford stock upgraded by Goldman Sachs due to strong commercial business
- CEO Jim Farley focuses on “iconic vehicles” over “boring cars”
- Ford emphasizes enthusiast products like Mustang, Raptor, and Bronco
- Company faces challenges in EV transition and global market strategy
- Ford revises full-year adjusted EBIT to $10-12 billion
Ford, known for its commercial vehicles and luxury cars, has recently seen its stock upgraded by Goldman Sachs from Neutral to Buy, primarily due to the strength of its Ford Pro commercial business.
CEO Jim Farley has announced a shift in the company’s focus, stating that Ford is moving away from “boring cars” and into the “iconic-vehicle business.” This strategy emphasizes enthusiast products like the Mustang, Raptor, and Bronco, which Farley says will no longer be just a “side business” for the company.
The move aims to replicate the success of Ford’s ‘Raptor’ models in future passenger cars, potentially leading to the discontinuation of more mundane models like the Focus, Fiesta, and Mondeo.
This strategic pivot comes at a time when Ford is grappling with several challenges. The company has faced inconsistent returns in recent years, particularly since 2021, due to heavy losses in its EV business unit, inflated warranty costs, and an ongoing labor crisis.
The aftermath of the 2023 United Auto Workers (UAW) strike is expected to result in additional costs of $8.8 billion through mid-2028, with incremental costs per vehicle rising to $900 by 2028 under the new contract.
Despite these headwinds, Ford has had a solid year so far, fueled by strong sales of its trucks, notably the Maverick and F-150 series. The company reported a revenue of $48 billion in Q2 2024, representing a 6% growth year-over-year. However, the Ford Model e reported a loss of $1.1 billion due to wholesale decline and pricing pressures in the industry.
Ford’s transition to electric vehicles (EVs) presents both opportunities and challenges. While the company has invested heavily in electrification, a recent lull in demand has caused some investor concern. Farley acknowledges that Tesla and Chinese automakers are Ford’s main competitors in the EV business, and the company needs to decide whether future vehicle platforms will be pure-electric or support different propulsion systems.
The company’s commercial division, Ford Pro, is seen as a bright spot. Goldman Sachs analysts believe that Ford Pro’s software and physical services will account for 20 percent of the commercial division’s EBIT by 2026. Paid software subscriptions have been growing at a rate of 35-40 percent each year, and Ford is targeting $1 billion in software revenue by 2025.
In response to these developments, Ford has revised its full-year adjusted EBIT to $10 billion to $12 billion and raised its free cash flow guidance from $7.5 billion to $8.5 billion.
The company’s focus on software technology adoption is expected to drive future growth, with Ford Pro on track to contribute 20% of Ford’s EBIT by 2026.
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